How to File Form 1120-S for an S Corporation: Step-by-Step Guide

As we step into 2025, it’s important for S corporations to start preparing for their annual federal income tax filing. One of the key forms required is Form 1120-S – U.S. Income Tax Return for an S Corporation.  

Note: For the 2025 tax year, there are a few important changes to be aware of when filling out IRS Form 1120 s 

What’s New for Form 1120-S for 2026 

For the 2025 tax year, several updates to Form 1120-S and its filing requirements are important for S corporations to know: 

1.Updated Penalty Amounts:  

• $255 per shareholder per month for late filing (up to 12 months). 
• 5% per month of unpaid tax if tax is owed (up to 25%). 
• If filed more than 60 days late, the minimum penalty is $525 or the tax due, whichever is smaller. 

2.New Direct Deposit and Electronic Payment Fields:  

• New Lines 28c–28e allow S corporations to request direct deposit of refunds for faster processing. 
• The IRS encourages electronic payments to ensure secure and timely tax filing. 

3. New Tax Law Effects and Reporting Codes:   

• Research Costs (Sec. ): Option to deduct or amortize domestic research expenses. 
• Sound Recordings: Expense qualified productions starting after July 4, 2025. 
• Farmland Sales: Special gain treatment; attach Schedule A (Form 1062). 
• Rural Loans: Partial exclusion of interest income. 

Complete Guide to Filling Form 1120-S for Your S Corporation 

Step 1: Sign In or Create an Account 

• If you’re new to TaxZerone, click Sign Up to create your account in just a few minutes.  
• Already registered? Simply click Sign In to log in and start filing your forms. 

Step 2: Go to the Business Tax Forms Dashboard 

• After logging in, Click Business Tax Form 1120-S to start a new Form 1120-S filing for your S Corporation. 

• Start a new return: select the tax year and business type, and enter the business name, address, and EIN. 

• Signing Officer Information: Enter the details of the person authorized to sign the corporation’s tax return, then click “Save & Continue” to proceed to the next section.  

Step 3: Enter the details for e-filing form 1120-s 

Part 1: Business Details 

General Business & Return Details 

Select the Type of Tax Year:  

Select Calendar Year if the corporation reports income and expenses January 1 – December 31. 

Select Fiscal/Short Year if the reporting period does not follow the calendar year or is less than 12 months. 

Note:  Enter the exact beginning and ending dates when filing. 

Business Information:  

Your previously entered data is automatically carried over in this process. Verify the Business Information details before proceeding. 

Item I: Number of Shareholder Count 

Enter the total number of shareholders who held stock in the corporation at any time during the tax year. 

Item J: Activity Rules 

Select the applicable boxes if your S Corporation has aggregated or grouped activities for tax purposes. 

Total Prior Year Income 

Enter the total income reported on the prior year’s Form 1120-S (before deductions) 

Authorized Signed 

Your previously entered data is automatically carried over in this process Verify the Business Information details before proceeding. Then Save & continue to proceed to the next section. 

Return-Specific Information 

Item H – Type of Return 

Check if applicable: Final return, Name change, Amended return, S election termination, Superseded Return. 

Address Change: 

• Select “Yes” if the business address has changed, then you must attach Form 8822-B. 
• Select “No” if the business address has not changed. 

Item C – Schedule M-3: 

Check this box if the corporation is required to file Schedule M-3 (Net Income (Loss) Reconciliation for Corporations with Total Assets of $10 Million or More). 

Note: If total assets are less than $10 million, Schedule M-3 is optional. You may file it voluntarily instead of Schedule M-1. 

Item F – Total assets 

This amount is automatically carried over from Schedule L, Line 15, Column (d) and shows total assets at year-end.  

Note: Ensure it matches your financial statements. 

S-Corp Specific Information 

Item A – S Corporation Election Effective Date 

Select the date your S Corporation election became effective, as accepted by the IRS. This is the date shown on your approved Form 2553 (Election by a Small Business Corporation). 

Item B – Business Activity Information 

Select the six-digit Business Activity Code from the IRS list that best describes your corporation’s primary business activity, product, or service. 

Otherwise select the Inactive Business option if the corporation had no income, expenses, or business activity during the tax year. Even if the business is inactive, Form 1120-S must still be filed. 

Item E – Date Incorporated 

Enter your corporation’s official formation date as shown on your incorporation documents. 

Item G – S Status Election This Year 

• Select “Yes” if the corporation is electing S corporation status for this tax year. If not previously filed, attach Form 2553.  
• Select “No” if the corporation is already an S Corporation, then click “Save & Continue” to proceed to the next section. 

Shareholder Details 

Item I – Add Shareholder Details 

Add shareholders who were shareholders during any part of the tax year. Provide the necessary shareholder details required for the preparation of Schedule K-1. 

Shareholder Individual Information – Instructions 

Select Shareholder Type: Individual, Trust, or Qualified Exempt Organization. 

Enter Shareholder Name: Provide First Name, Middle Name (if applicable), Last Name, and Suffix (if any). 

Enter SSN: Enter the shareholder’s 9-digit Social Security Number. 

Enter Shareholder Address: Check the box if the address is outside the U.S. , and also check the box if the shareholder lives in a different state than the address provided. 

Enter Ownership Percentage: Enter the shareholder’s ownership percentage. 

Check the box if you want to notify this shareholder with a copy of their Schedule K-1. 

Choose how you want to send the Schedule K-1: 

• Share via Email:  The K-1 will be emailed after IRS acceptance. 
• Share via ZeroneVault: The K-1 will be shared securely through the portal. 

Note: The Schedule K-1 will be sent only after the return is accepted by the IRS. 

Click “Save” to continue or select “Save & Add Another Shareholder” to enter additional shareholders

Review Business Summary Before Continuing 

Verify business name, address, tax period and Check S-Corp details, shareholder Information, and ownership percentages (total = 100%), then click “Edit” to make corrections or “Continue” to proceed to the Income Section. 

Part 2: Income Section  

Gross Receipts 

Line 1a – Gross Receipts or Sales 

 Enter the total income of your S Corporation earned from its primary business activities during the tax year. This includes all sales revenue before any deductions. 

Note: Do not include income from interest, dividends, or other non-operating sources 

Line 1b: Returns and allowance 

Enter the total amount of cash and credit refunds provided to customers for returned merchandise, rebates, or any other allowances that reduce gross sales. 

Line 1c: Balance 

This field is automatically calculated as Line 1a minus Line 1b and represents your net sales, then click “Save & Continue” to proceed to the next section. 

Cost of Goods Sold 

Line 2: Did you have any costs for making or buying the products you sold? 

Select “Yes” if your corporation had any cost of goods sold then attach form 1125-A 

Select “No” if there were none. Then Save & Continue to proceed to the next section. 

Line 3: Gross Profit 

Gross profit is calculated automatically by subtracting Line 2 from Line 1c. Save & Continue to proceed to the next section. 

Net gain (loss) 

Line 4: Net Gain (Loss) from Business Property 

This field is automatically calculated when you attach Form 4797, ensuring that the relevant amounts are updated based on the information provided in the form. Then Save & Continue to proceed to the next section. 

Other Income 

Line 5: Do you have any other income to report? 

Select “Yes” to report income that is not from regular sales or services. Choose Consolidated Other Income to enter a single total with a short description or Itemized Other Income to list each income source separately. 

Select “No” if none. 

Note: Ensure all non-sales income is properly reported. 

Review Income Summary Before Continuing 

• Verify Gross Receipts and total sales amounts. 

• Check Cost of Goods Sold to ensure product costs are accurate. 

• Confirm Gross Profit (Net Sales − Cost of Goods Sold). 

Line 6: Total Income (Loss) 

Line 6 is automatically calculated by adding: Line 3 (Gross Profit), Line 4 (Net Gain/Loss), Line 5 (Other Income). Then Click Edit to fix errors or Continue to proceed to the Deduction Section. 

No manual calculation is required; the system totals it automatically when e-filing. 

Part 3: Deduction 

Salary 

Line 7: Does the corporation have any Compensation of Officers to report? 

Select “Yes” and attach Form 1125-E to report the total compensation paid to corporate officers during the tax year, including salaries, wages, bonuses, and taxable benefits. The amount on this Line will be automatically filled from the attached form and must match the total reported on Form 1125-E. 

Line 8: Employee Salaries and Wages 

Enter the total salaries, wages, bonuses, commissions, and other taxable benefits paid to employees (not officers), then click “Save & Continue” to proceed to the next section. 

Note: Do not include any amounts already reported on Line 7. 

Business Maintenance & Taes   

Line 9: Repairs and maintenance 

Enter the total amount your corporation spent on routine repairs and maintenance during the tax year that were not deducted anywhere else on the return. 

Line 10: Bad Debts 

Enter the total business income that was previously recorded but became uncollectible during the tax year. 

Note: Also, enter the total rent paid for business property during the year. 

Line 11: Rents 

Enter the total deductible rental expenses paid for the use of business property, such as office space, equipment, vehicles, or land used in business operations. 

Line 12: Tax and Licenses 

Enter all deductible taxes and license fees paid to operate your business, such as state and local income taxes, payroll taxes, real estate taxes, and business permits. 

Note: Do not include federal income taxes. Keep records to support your deduction. 

Line13: Interest 

Enter the total interest your corporation paid during the year on business loans, Lines of credit, or other debt used for business operations. 

Tip: Use Add Explanation to describe the interest expense. 

Line 16: Advertising  

Enter the total amount paid or incurred during the tax year for advertising and promotional expenses related to the corporation’s trade or business, then click “Save & Continue” to proceed to the next section. 

Depreciation 

Line 14: Do you have any depreciation or amortization to report for your business assets? 

• Enter the total depreciation for business assets for the tax year. Depreciation allows you to spread the cost of property 
• You can report depreciation in two ways: 
  • Entering the total manually (if already calculated) 
  • Attaching Form 4562 when reporting multiple assets or detailed schedules. 

Note: Do not include interest on personal loans or non-business debt. 

Employee Welfare 

Line 17: Pension, profit-sharing, and other benefit plans 

Report contributions the corporation made during the tax year to employee retirement or benefit plans. These contributions are deductible and help support employees’ long-term benefits. 

Line 18: Employee benefit programs 

Enter fringe benefits paid for employees who own 2% or less of the corporation’s stock, then click “Save & Continue” to proceed to the next section. 

Note: For employees who own more than 2% of the corporation’s stock, report fringe benefits on Line 7 or 8 (or Form 1125-E), as applicable. 

Special Deduction 

Line 15: Depletion 

Enter the timber depletion deduction amount in the depletion field if applicable. Do not include depletion for oil and gas properties on the corporate return, as shareholders must compute oil and gas depletion individually. 

Line 19: Energy Efficient Commercial Buildings Deduction 

Report deductions for qualified improvements that reduce energy use for heating, cooling, lighting, or hot water in corporation-owned commercial buildings. Complete and attach Form 7205 if claiming this deduction, then click “Save & Continue” to proceed to the next section. 

Tip: Refer to Section 179D and the Form 7205 instructions for eligibility and calculation details. 

Other deduction 

Line 20: Do you have any other deductions to report ? 

• Select “Yes” if you have any other deductions to report. For additional depreciation and amortization, attach Form 4562, and for other business expenses, attach a supporting statement. 
• Select “No” if none, then click “Save & Continue” to proceed to the next section. 

Review Deduction Summary Before Continuing 

• Verify all supporting documents, including invoices, payroll records, leases, and receipts, and ensure required forms (1125-E, 4562) are attached. 
• Line 21 – Total Deduction and Line 22 – Ordinary Business Income are auto-calculated fields. 
• Review the summary amounts carefully, then click “Edit” to make corrections or “Continue” to proceed to the Tax & Payments section. 

Part 4: Tax and payments 

Tax Liability Determination 

Line 23a. Excess Net Passive Income and LIFO Recapture Tax 

Enter tax only if the S-Corp has C-Corp profits with passive income over 25% of receipts or owes LIFO recapture. 

Note: This tax is paid in four installments (first by the C corporation, remaining by the S corporation). Enter the installment for this year and label it “LIFO tax.” 

Line 23b: Tax From Schedule D   

If you attach Schedule D, Line 23b will be auto-filled from Schedule D, only if the S corporation has built-in gains or capital gains that result in a corporate-level tax. 

Line 23c: Add Lines 23a and 23b 

This Line automatically totals Line 23a and Line 23b. Include the following additional amounts if applicable: 

• Form 8697: Enter interest due under the look-back method for completed long-term contracts and attach the form. 

Line 25: Estimated Tax Penalty 

Enter any penalty for underpayment of estimated tax. This applies if the corporation did not make enough estimated payments during the year, then click “Save & Continue” to proceed to the next section. 

Payments and Credits 

Line 24a: Current Year’s Estimated Tax Payments and Prior Year’s Overpayment Applied 

Enter the total estimated tax payments made for the current year. Also include any overpayment from the prior year that you elected to apply to this year’s estimated tax. 

Note: These payments reduce the remaining balance of tax owed. 

Line 24b: Tax deposited with Form 7004 

Enter the amount of tax you paid when filing Form 7004 (Application for Automatic Extension of Time to File). This covers deposits made to estimate tax liability when requesting an extension. 

Line 24c: Credit for Federal Tax Paid on Fuels 

Enter the credit for federal excise tax paid on fuels.  

Line 24d: Elective Payment Election Amount (Form 3800) 

Enter the elective payment amount from Form 3800, General Business Credit, if the corporation elected to treat eligible credits (such as certain energy or clean vehicle credits) as direct tax payments.  

Reference: See Form 3800 instructions for details on eligible credits and the elective payment election. 

Line 24z: Total of Lines 24a through 24d 

This field is automatically calculated by combining the values of Lines 24a through 24d to determine total payments and credits, then click “Save & Continue” to proceed to the next section. 

Tax Due or Refund Calculation 

Line 26: Amount owed 

This shows how much tax your S corporation still owes. It is automatically calculated. If Total Payments and Credits (Line 24z) are less than the sum of Total Tax (Line 23c) and Estimated Tax Penalty (Line 25), the difference appears here. 

Note: This is the amount your corporation must pay when filing. 

Line 27: Overpayment 

This is an automatically calculated field. If Total Payments (Line 24z) exceed Total Tax (Line 23c) plus the Estimated Tax Penalty (Line 25), the difference is your overpayment, which can be refunded or applied to your next return. 

Line 28:  Overpayment Options 

Line 28a: Credited to Estimated Tax: Enter the amount of any overpayment (from Line 27) that should be applied to next year’s estimated tax. This election is irrevocable. 

Line 28b: Refunded: Enter the amount to be refunded. Direct deposit is recommended for faster and secure refunds. 

Lines 28c–28e: Direct Deposit: 

• 28c: Enter the 9-digit routing number. 
• 28d: Select the correct account type (checking or savings). 
• 28e: Enter the account number (up to 17 characters; no spaces or special symbols), then click “Save & Continue” to proceed to the next section. 

Review Tax & payment Summary Before Continuing 

• Tax Liability: Confirm excess passive/LIFO tax, Schedule D tax, Total Tax (23a + 23b) and any estimated tax penalty. 
• Payments & Credits: Enter estimated payments, Form 7004 deposits, credits, and confirm Total Payments. 
• Refund or Amount Due: Verify balance due, overpayment applied to next year, or refund amount. Click “Edit” to make corrections or “Continue” to proceed to the Schedule B Section. 

Part 5: Schedule B 

Basic Business information 

Line 1: Chek the Accounting method 

Select the accounting method your corporation uses (Cash, Accrual, or Other). 

Line 2a: S Corporation Primary Business Activity 

Enter your corporation’s main business activity code and Description (Describe the corporation’s primary product or service provided) 

Line 2b: Product or Service Description 

Enter a short description of your corporation’s main products or services, then click “Save & Continue” to proceed to the next section. 

Shareholder & Ownership Details  

Line 3: Were any shareholders during the tax year a trust, estate, disregarded entity, nominee, or similar person? 

Select “Yes” if any shareholders are trusts, estates, disregarded entities, or nominees. Attach Schedule B-1  

 Select “No” if all shareholders are regular individuals or corporations. 

Line 4a: At the end of the tax year, did your S Corporation: Directly own 20% or more of another corporation (domestic or foreign)? OR directly or indirectly own 50% or more of another corporation’s total outstanding stock? 

Select “Yes” if the corporation owns ≥20% of another corporation’s stock (domestic or foreign) or owns ≥50% directly or indirectly. Provide:name, EIN, country, ownership %, and QSub status  

Select “No” if it does not. 

Note: Use SSN for individuals (if available); EIN for corporations/organizations. 

Line 4b: At the end of the tax year, did your S Corporation: Directly own 20% or more of the profit, loss, or capital in a partnership or trust (domestic or foreign)? OR directly or indirectly own 50% or more of the profit, loss, or capital in such an entity? 

Select “Yes” if the corporation owns ≥20% of a partnership or has a beneficial interest in a trust (domestic or foreign) or owns ≥50% directly or indirectly. 

Select “No” if it does not. 

Line 5a: Did the corporation have any outstanding shares of restricted stock? 

Select “Yes” if the corporation had restricted stock at year-end. Report the number of restricted and non-restricted shares  

 Select “No” if no restricted stock existed. 

Line 5b: Did the corporation have any stock options, warrants, or similar instruments outstanding at the end of the tax year? 

Select “Yes” if the corporation had stock options, warrants, or similar rights at year-end. Enter the following details: 

• Total shares outstanding at year-end (EOY): The actual number of shares issued and outstanding at the end of the tax year. 
• Total shares outstanding if all executed: The total number of shares that would exist if all stock options, warrants, or similar instruments were fully exercised. 

Select “No” if none existed, then click “Save & Continue” to proceed to the next section. 

Special Transaction & Compliance  

Line 6: Did the corporation act as a material advisor for any reportable transaction and file Form 8918? 

• Select “Yes” if the corporation acted as a material advisor on any reportable transactions and filed Form 8918  
• Select “No” if the corporation did not act as a material advisor. 

Note: Form 8918 is not filed with Form 1120-S. It must be submitted separately. 

Line 7: Did the corporation issue any publicly offered debt instruments with original issue discount (OID)? 

Check the box only if your corporation has issued publicly offered debt instruments that feature an original issue discount (OID). If the corporation has issued these instruments, you may be required to file Form 8281 

Note: Form 8281 is filed separately, not with Form 1120-S. 

Line 8: Did the corporation have any net unrealized built-in gain (NUBIG) from when it was a C corporation, or from assets acquired from a C corporation that still carry unrecognized built-in gain? 

This applies if the corporation was previously a C corporation (or acquired C corp assets with carryover basis) and still has unrecognized built-in gain, attach a statement reporting the amount. 

Line 9: Did the corporation have an election under Section 163(j) for any real property trade or business or any farming business in effect during the tax year? 

Select “Yes” if the corporation elected to exclude a real property trade or farming business from the interest expense limitation under Section 163(j). 

 Select “No” if no election was made. 

Line 10: Does the corporation satisfy one or more of the following conditions related to business interest expense? 

• Select “Yes” if the corporation Owns a pass-through with carryover business interest, Has average annual gross receipts over $ 30 Million with business interest expense, or Is a tax shelter with business interest expense. 

• Complete Form 8990 if “Yes”  

• Select “No” if none of these apply. 

Line 11: Does the corporation satisfy both of the following conditions? 

• The corporation qualifies if both are true: 

• Total receipts for the year ≤ $250,000 

• Total year-end assets ≤ $250,000 

• Select “Yes” if both thresholds are met. 

• Select “No” if either threshold is exceeded. 

Line 12: During the tax year, did the corporation have any non-shareholder debt that was cancelled, forgiven, or had the terms modified to reduce the principal amount of the debt? 

Report if any non-shareholder debt was cancelled, forgiven, or reduced this year (exclude PPP loan forgiveness). Select “Yes” if such debt exists. 

Select “No” if none. 

Note: If “Yes,” you don’t need to complete Schedules L or M-1. 

Line 13: During the tax year, was a qualified subchapter S subsidiary (QSub) election terminated or revoked? 

Report if a Qualified Subchapter S Subsidiary (QSub) election ended or was revoked (voluntary or automatic) this year. 

Select “Yes” if the QSub election ended or was revoked. 

Select “No” if not. 

Line 14a: Did the corporation make any payments that would require it to file Form(s) 1099? 

Select “Yes” if the corporation made payments requiring Form 1099 (rents, services, interest, dividends, contractor payments). Then complete Line 14b  

 Select “No” if none; skip Line 14b. 

Line 14b: If “Yes” to Line 14a, has the corporation filed or will it file the required Form(s) 1099? 

If you answered “Yes” to Line 14a, confirm whether all required Forms 1099 were filed. 

Select “Yes” if all required 1099s were filed. 

Select “No” if any required 1099s were not filed. 

Line 15: Is the corporation submitting Form 8996 to certify that it is a Qualified Opportunity Fund (QOF)? 

Did the corporation certify as a Qualified Opportunity Fund (QOF) by filing Form 8996? 

• Select “Yes” if certifying as a QOF and attach Form 8996. 

• Select “No” if none. 

Line 16: At any time during the tax year, did the corporation: 

• Select “Yes” if the corporation received, sold, exchanged, or disposed of any digital asset (including interests in one) during the year.    
• Select “No” if none, then click “Save & Continue” to proceed to the next section. 

Note: simply buying digital assets with cash does not count. 

Review Schedule D Summary Before Continuing 

Verify that all information under: 

• Basic Business Information 
• Shareholder & Ownership Details 
• Special Transactions & Compliance 

is accurate and complete before proceeding. Update any incorrect or missing information. Click “Edit” to make corrections or “Continue” to proceed to the Schedule K Section. 

Part 6: Schedule K 

Income (Loss) 

Line 1: Ordinary business income (loss) 

• This field is prepopulated from Form 1120-S, Line 22. 
• It reflects total ordinary business income (or loss) from regular operations. 
• excluding separately stated items reported on Schedule K. 

Line 2: Net rental real estate income (loss) 

• Complete and attach Form 8825 to report rental real estate income and expenses. 
• The net amount from Form 8825 will auto-populate Schedule K, Line 2. 
• Ensure all rental income and deductible expenses are properly included. 

Line 3a: Other gross rental income (loss) 

• Enter net income (or loss) from non-real-estate rentals (e.g., equipment or other property). 
• Do not include amounts reported on Form 8825. 
• Report income and related expenses separately from rental real estate (Line 2). 

Line 3b: Expenses from other rental activities 

• Enter deductible expenses from non-real-estate rental activities (e.g., equipment or property rentals). 
• Attach a detailed supporting statement. 
• Subtract Line 3b from Line 3a to determine net income (or loss) on Line 3c. 

Line 3c: Other net rental income (loss). Subtract Line 3b from Line 3a 

• This is an auto-calculated field. 
• It is computed by subtracting Line 3b (other rental expenses) from Line 3a (other rental income). 

Line 4: Interest income

• Enter the corporation’s total taxable interest income for the year. 
• Include interest from: 
• Investments 
• Bank accounts 
• Loans 
• Other taxable sources 
• This amount flows through to shareholders and is reported on their personal tax returns. 

Note: Do not include tax-exempt interest (e.g., municipal bonds), which is reported elsewhere. 

Line 5a: Dividends: Ordinary dividends 

• Enter the total ordinary dividends received from stocks, mutual funds, or other investments during the year. 
• Include both qualified and nonqualified dividends (qualified dividends are reported separately on Line 5b). Source: Form 1099-DIV, Box 1a. 
• Do not include: 
• Capital gain distributions (report on Line 5c) and  
• Other income like interest or rental income (report on their respective Lines) 

Line 5b: Dividends: Qualified dividends 

• Enter the total qualified dividends received during the year. 
• Qualified dividends are taxed at long-term capital gains rates but are part of the total ordinary dividends on Line 5a. Source: Form 1099-DIV, Box 1b. 
• Do not include: 
• Nonqualified ordinary dividends (report on Line 5a) 
• Capital gain distributions (report on Line 5c) 

Line 6: Royalties 

• Enter the total gross royalties received during the tax year. 
• Royalties are payments for the right to use the corporation’s property, including: 
• Intellectual property (patents, copyrights, trademarks, software licenses) 
• Natural resource rights (oil, gas, mineral, timber leases) 
• Franchise or other licensing agreements 
• Report the gross amount before expenses. Source: Form 1099-MISC, Box 2. 

Line 7: Net short-term capital gain (loss) (attach Schedule D (Form 1120-S)) 

• Enter the net short-term capital gain or loss for the year. 
• Short-term gains/losses come from selling or exchanging capital assets held 1 year or less, such as: 
• Stocks 
• Bonds 
• Investment property 
• Certain business assets not held for ordinary sale 
• Report the amount from Schedule D (Form 1120-S), Line 7. 
• Losses should be entered in parentheses. 

Line 8a: Net long-term capital gain (loss) (attach Schedule D (Form 1120-S)) 

• Enter the net long-term capital gain or loss for the year. 
• Long-term gains/losses come from selling or exchanging capital assets held more than 1 year, such as: 
• Stocks 
• Bonds 
• Investment property 
• Real estate 
• Certain business property not held for ordinary sale 
• Report the amount from Schedule D (Form 1120-S), Line 15. 

Line 8b: Collectibles (28%) gain (loss) 

• Enter the S corporation’s net gain or loss from collectibles held >1 year. 
• Collectibles include art, rugs, antiques, metals (gold, silver, platinum, palladium), gems, stamps, coins, and certain alcoholic beverages. 
• Use Schedule D (Form 1120-S), Line 8b as the source. 
• Only include assets meeting IRS definitions and held >1 year. 
• Pass-through: Amount flows to Schedule K-1, Box 8b. Shareholders calculate tax using the 28% Rate Gain Worksheet in Schedule D (Form 1040). 

Note: Report separately from other capital gains for correct tax treatment. 

Line 8c: Unrecaptured section 1250 gain 

• Report net gain from depreciable real property held >1 year where part of the gain is due to prior depreciation. 
• Maximum federal tax rate for shareholders: 25%. 
• Calculate on Schedule D (Form 1120‑S); attach statement if needed. 
• Include pass-through gains from partnerships, trusts, estates, RICs, or REITs. 
• Report on Schedule K‑1, Box 8c. 

Line 9: Net section 1231 gain (loss) 

• Report net gain or loss from depreciable business property or real estate held >1 year. 
• Exclude inventory and personal-use property. 
• Calculate on Form 4797 and attach to the return. 
• Keep passive and non-passive Section 1231 amounts separate if applicable. 
• Pass-through: Amount goes to Schedule K‑1, Box 9 for shareholder reporting. 

Line 10: Other income (loss) 

• Report Other Income (Loss) that has not been included elsewhere on the tax return. This typically includes items such as portfolio income, bad debt recoveries, casualty/theft gains, or unusual items 
• Reporting options: 
  • Consolidated: Enter one total amount and a brief description.  
  • Itemized: Report each asset separately using income/loss codes; attach details for IRS and shareholder transparency. 
• Total and Other Income (Loss) Total will be Auto calculated, then Click “Save & Continue” to proceed to the next section. 

Deductions 

Line 11: Section 179 deduction 

• Enter the total Section 179 deduction from Form 4562, Line 12. 
• Allows the S corporation to fully expense qualifying property placed in service during the year. 
• Deduction is limited by business income and IRS annual limits. 

Line 12a: Cash charitable contributions 

Auto-Calculated Field: Total cash contributions made to qualified charities. Shareholders use this to report their deductible share on individual returns. 

Line 12b: Noncash charitable contributions 

• Enter total noncash charitable contributions for the year. 
• Report using attached statement with applicable codes: 
• C: Noncash, 50% AGI limit (e.g., clothing, household items) 
• D: Noncash, 30% AGI limit (e.g., food inventory) 
• E: Capital gain property, 50% limit org (30% AGI) (e.g., appreciated stocks) 
• F: Capital gain property, 20% AGI limit (e.g., artwork, collectibles) 
• G: 100% AGI limit (e.g., qualified conservation contributions) 
• Attach Form 8283 for noncash donations over $500. 
• Ensures shareholders report their pro rata share correctly on individual returns. 

Line 12c: Investment interest expense 

Enter total investment interest paid or accrued during the year. 

Line 12d: Section 59(e)(2) expenditure 

• Enter total deferred qualified expenses (e.g., reforestation, soil/water conservation, intangible drilling). 
• Report on Schedule K-1, Box 12, Code J. 
• Attach a statement detailing each expenditure type, amount, and related property. 

Line 12e: Other deductions 

Enter other deductible business expenses not reported elsewhere on Schedule K  

Credits 

Line 13a: Low-income housing credit 42(j)(5) 

If the corporation invested in a partnership under Section 42(j)(5), enter the credit from Schedule K-1 

Line 13b: Low-income housing credit (other) 

• Enter on Line 13b any low-income housing credit not included on Line 13a, using Code D  
• Schedule K-1: Report each shareholder’s pro rata share on Box 13, Code D. 
• For multiple rental activities, attach a statement showing the credit for each separate activity. 

Line 13c: Qualified rehabilitation expenditures (rental real estate) 

Enter the total qualified rehabilitation expenditures for rental real estate.  

Line 13d: Other rental real estate credits 

• Enter other rental real estate credits on Line 13d. Attach a statement if multiple types. 
• Schedule K-1: Report each shareholder’s share in Box 13, Code F. 
• Single type: F* + amount, attach statement. 
• Multiple types: F* + “STMT”, attach breakdown by type/activity. 

Line 13e: Other rental credits 

Enter other rental activity credits not reported on Lines 13a–13d. Identify the credit type next to Line 13e. 

Line 13f: Biofuel producer credit 

Enter trade or business biofuel producer credit from Form 6478, Line 4.. If related to rental activities, report on Line 13d or 13e instead. 

Line 13g: Other credits 

Enter total other credits for the year (combined or itemized), then click “Save & Continue” to proceed to the next section. 

Alternative Minimum Tax (AMT) 

Line 15a: Post-1986 depreciation adjustment 

• Report the difference between regular depreciation and AMT depreciation (generally ADS) for eligible tangible property placed in service after 1986. 
• If not applicable, enter 0 or negative number. 
• Maintain supporting depreciation schedules.  

Line 15b: Adjusted gain or loss 

• Report the difference between regular tax and AMT gain or loss for eligible property placed in service after 1986 (including certified pollution control facilities). 
• Enter as negative if AMT gain is lower, AMT loss is higher, or AMT shows a loss while regular tax shows a gain. 
• Attach a statement allocating amounts related to capital gain or Section 1231 gain/loss. 

Line 15c: Depletion (other than oil and gas) 

• Report the AMT adjustment for depletion on mines, wells (excluding oil and gas), and other natural deposits.  
• Enter the difference between regular tax and AMT depletion; use a negative amount if the AMT deduction is larger.  

Line 15d: Oil, gas, and geothermal properties-gross income 

• Report income from oil, gas, and geothermal properties under §613(a) included in ordinary business income (Form 1120-S, Line 22).  
• Exclude items passed through separately on Schedule K-1.  
• Provide shareholders with a statement showing allocations so they can adjust their K-1 amounts.  

Line 15e: Oil, gas, and geothermal properties-deductions 

• Report total deductions for oil, gas, and geothermal properties included in ordinary business income (Form 1120‑S, Line 22).  
• Exclude items separately stated on Schedule K‑1; provide shareholders a statement showing allocations.  
• Separate amounts for non‑geothermal oil and gas properties and for geothermal deposits for shareholder reporting.  

Line 15f: Other AMT items 

• Report other AMT items not on Lines 15a–15e. Attach a statement. According to Schedule K-1 Instructions: 
  • Single item: code F* + amount, attach statement 
  • Multiple items: code F* + “STMT,” attach statement with amounts, then Click “Save & Continue” to proceed to the next section. 

Basis & Shareholder Adjustments 

Line 16a: Tax-exempt interest income 

• Enter the total tax-exempt interest income received by the S corporation during the tax year. 
• Include exempt-interest dividends distributed by mutual funds or regulated investment companies (RICs). 
• Shareholders must report their portion on Form 1040 or 1040-SR, Line 2a. 
• Increase each shareholder’s stock basis by the amount reported here, per Section 1367(a)(1)(A). 

Note: Although this income is exempt from federal tax, it must still be reported for informational and basis purposes. 

Line 16b: Other tax-exempt income 

• Report tax-exempt income affecting shareholder stock basis under Section 1367(a)(1)(A), including life insurance proceeds, forgiven PPP loans, and certain credit/elective payments. 
• Include allocations from pass-through entities if applicable. 
• For PPP forgiveness, attach a statement with S corp name, EIN, amount, and reference Rev. Proc. 2021-48. 
• Adjust if reported amounts differ from actual tax-exempt income. 

Line 16c: Non-deductible expenses 

• Enter expenses not deductible for federal tax but that reduce shareholder stock basis under Section 1367(a)(2)(D). 
• Includes payments for eligible credits under a transfer election (Section 6418). 
• Do not include Separately stated deductions on Schedules K/K-1, Capital expenditures, Items deferred to a later tax year 

Line 16d: Distributions (attach statement if required) 

• Report all cash and property distributions (exclude Line 17c dividends). 
• Include pro rata share of certain tax credit bond interest. 
• Value property at FMV; attach details: acquisition date, distribution date, FMV, and corporation’s basis. 
• Apply IRS ordering rules for taxability. 

Line 16e: Repayment of loans from shareholders 

• Enter repayments of bona fide shareholder loans for the tax year. 
• Exclude dividends or non-loan payments. 
• Keep loan agreements and repayment records for verification. 

Line 16f: Foreign taxes paid or accrued 

• Enter total foreign taxes paid or accrued, in U.S. dollars. 
• Convert using the exchange rate at the time of payment or accrual. 
• Shareholders use this for their individual foreign tax credits (see Pub. 514), Then Click “Save & Continue” to proceed to the next section. 

Other information  

Line 17a: Investment income 

• Report gross income from property held for investment, including: 
• Interest, dividends, and royalties 
• Net gain from sale of investment property (excess over net capital gain) 
• Capital gains or qualified dividends a shareholder elects as investment income under section 163(d) 
• Exclude: passive activity income/losses, net lease income, and passive losses. 

Line 17b: Investment expenses 

Enter the deductible expenses directly related to producing investment income 

Line 17c: Total dividend distributions paid from accumulated earnings and profits 

Report dividends paid to shareholders from accumulated earnings and profits (E&P). These are taxable dividends reported 

Line 17d: Other items and amounts (attach statement) 

• Enter special items, amounts, or credits not reported elsewhere on Schedule K-1. 
• Examples: qualified rehabilitation expenditures, credit recaptures, look-back interest, Section 179 items, installment sales, QBI, excess business interest, farming/fishing income, and other IRS-specified items. 
• Reporting options: 
• Consolidated: Single total with brief description. 
• Itemized: Separate amounts by IRS code with details; attach supporting statements for clarity. 

Line 14: Check this box if the corporation has foreign income, assets, operations, or other international reporting requirements (Schedules K-2 and K-3 may apply). 

• Check if reporting foreign income, taxes, or international items. 
• Follow Schedule K-2/K-3 instructions. 
• If qualifying for an exception: 
  • Notify shareholders via K-1 attachment or separate statement. 
  • Otherwise attach: “Qualified for exception to filing Schedule K-2. Then Click “Save & Continue” to proceed to the next section. 

Reconciliation 

Line 18: Income (loss) reconciliation 

Reports the corporation’s net income or loss. Aligns the corporation’s books with tax reporting. This can be supported by Schedule M-1, if applicable, then click “Save & Continue” to proceed to the next section. 

Review Schedule k Summary Before Continuing 

• Schedule K Summary: Click to view a summary of the corporation’s overall tax information. 
• Schedule K-1 Summary: Click to review and distribute each shareholder’s portion of income, deductions, and credits, ensuring accurate pass-through reporting for individual tax returns. Click “Edit” to make corrections or “Continue” to proceed to the Schedule L Section 

Part 7: Schedule L 

Assets  

Line 1: Cash 

• Enter the total cash your corporation held at the beginning and end of the tax year. 
• including checking and savings accounts, petty cash, and other cash equivalents. 

Line 2a: Trade notes and accounts receivable 

Enter the Trade and accounts receivable  

 Line 2b: Less allowance for bad debts 

Enter the estimated portion of receivables that may not be collected. This reduces the receivable balance to its net realizable value. 

Line 3: Inventories 

Include the value of inventory your business owns at the beginning and end of the year. This includes raw materials, work-in-progress, and finished goods held for sale. 

Line 4: U.S. government obligations 

Report the value of U.S. Treasury bonds, notes, or other obligations owned by the corporation at year-end. 

Line 5: Tax-exempt securities 

Enter the total value of all tax-exempt securities held by the corporation. 

• Include state and local government obligations with interest excluded under Section 103(a). 
• As well as mutual fund or regulated investment company stock that paid exempt-interest dividends during the tax year. 

Line 6: Other current assets 

Attach statement listing other current assets expected to be converted into cash within one year (such as prepaid expenses, short-term investments, and deposits). 

Line 7: Loans to shareholders 

Enter the outstanding amount of any loans made by the corporation to its shareholders. These must match your records. 

Line 8: Mortgage and real estate loans 

• Enter the total of loans secured by real estate owned by the corporation. Include principal balances only. 
• Do not include interest due or investment property not held as a loan. 

Line 9: Other investments 

Attach statement showing other investments not reported elsewhere, such as stocks, bonds, or partnership interests held by the corporation. 

Line 10a: Buildings and other depreciable assets 

Enter the cost or basis of buildings, machinery, equipment, and other assets subject to depreciation. 

Line 10b: Less accumulated depreciation 

Enter the total depreciation you’ve claimed so far on the assets listed in Line 10a. Use a negative number (in parentheses) since depreciation reduces the asset’s value. 

Line 11a: Depletable assets 

• Enter the cost or basis of natural resources your business owns that can be depleted over time, like mineral, oil, gas, or timber properties.  
• This reports the total value of these assets on your balance sheet. 

Line 11b: Less accumulated depletion 

• Enter the less depletion claimed to date on the depletable assets reported in  
• Line 11a. Enter this amount as a negative number (in parentheses). 

Line 12: Land (net of any amortization) 

• Enter the purchase cost of land owned by the corporation.  
• Land isn’t depreciable or amortizable, so report only its original cost. 

Line 13a: Intangible assets (amortizable only) 

• Enter the cost of intangible assets your business can amortize, like patents, copyrights, trademarks, and goodwill.  
• This shows the total value of these assets on your balance sheet. 

Line 13b: Less accumulated amortization 

• Enter the total amortization claimed to date on the intangible assets reported in Line 13a.  

• Show this amount as a negative number (in parentheses). 

Line 14: Other assets 

• Attach a statement listing other long-term assets not reported elsewhere, such as security deposits, deferred charges, or long-term prepaid expenses.  
• Enter the total value on this Line. 

Line 15: Total assets 

• This Line is automatically calculated. 
• It represents the total of all assets reported from Lines 1 through 14 at both the beginning and end of the tax year. 

Save & Continue to proceed to the next section. 

Liabilities & Shareholder’s Equity 

Line 16: Accounts payable  

Enter the total amount your corporation owes to vendors, suppliers, or service providers for purchases made on credit that are unpaid at the beginning and end of the year. 

Line 17: Mortgages, notes, bonds payable in less than 1 year 

Enter the total short-term debts due within one year, including the current portion of long-term loans, notes payable, and any bonds maturing within the next 12 months. 

Line 18: Other current liabilities 

• Attach a statement listing other short-term obligations not reported elsewhere, such as accrued expenses, payroll liabilities, taxes payable, or credit card balances.  
• Enter the total amount due within the year on this Line. 

Line 19: Loans from shareholders 

• Enter the total outstanding loans that shareholders have made to the corporation.  
• Make sure these amounts are consistent with your accounting records and reflect any repayments or adjustments during the tax year. 

Line 20: Mortgages, notes, bonds payable in 1 year or more 

• Enter long-term debts not due within the next 12 months, such as mortgages, bank loans, or bonds.  
• Include only the portion that remains after subtracting any current-year payments. 

Line 21: Other liabilities 

Attach a statement listing all other liabilities not reported on earlier Lines, such as pension obligations, deferred taxes, or lease obligations. 

Line 22: Capital stock 

• Enter the total par or stated value of stock issued to shareholders.  
• This reflects the corporation’s legal capital and the amount recorded on its books for issued shares. 

Line 23: Additional paid-in capital 

• Report amounts shareholders paid above the par or stated value of stock, including capital contributions and any paid-in surplus.  
• This reflects extra investment in the corporation beyond legal capital. 

Line 24: Retained earnings 

• Enter the corporation’s retained earnings here.  
• If you keep separate accounts for appropriated and unappropriated retained earnings, continue that method for your balance sheet.  
• If you later become a C corporation, you’ll need to report these amounts on separate Lines of Schedule L on Form 1120. 

Note: If the total adjustment to be entered is a negative amount, enter the amount in parentheses 

Total Liabilities 

Liabilities for both the beginning and end of the year are automatically calculated based on the corporation’s records. 

 Shareholders’ Equity 

Line 25: Adjustments to shareholders’ equity 

• Enter any adjustments to shareholders’ equity here.   
• Include unrealized gains or losses on available-for-sale securities, foreign currency translation adjustments. 
• Excess pension liabilities, ESOP debt guarantees, and stock-based compensation. 

Line 26: Less cost of treasury stock 

• Enter the total cost of treasury stock here, including any shares repurchased from shareholders.  
• Record the amount as a negative number, since it reduces total shareholders’ equity. 

Total Shareholders’ Equity 

Total Shareholders’ Equity for both the beginning and end of the year are automatically calculated based on the corporation’s records. 

Line 27: Total liabilities and shareholders’ equity 

This Line is automatically calculated. It represents the total of Lines 16 through 26 and must equal the total assets reported on Line 15, then click “Save & Continue” to proceed to the next section. 

Balance Sheet Summary 

Before you move forward, take a moment to carefully review the Schedule L – Balance Sheet Summary to ensure everything is accurate and complete. 

✔ Confirm that all asset amounts are correctly entered for both the beginning and end of the tax year. 
✔ Verify that liabilities are properly reported and classified on the correct Lines. 
✔ Ensure shareholders’ equity figures are accurate and fully reported. 
✔ Double-check that Total Assets equal Total Liabilities plus Shareholders’ Equity (Line 27 must balance). 
✔ Look for any missing, incorrect, or unnecessary negative amounts. 

Note: Make any necessary updates before finalizing the return. 

Click “Edit” to make corrections or “Continue” to proceed to the Reconciliation Section. 

Part 8: Reconciliation 

Schedule M-1 

Line 1:  Net income (loss) per books 

Report the corporation’s net income or loss as reflected in its financial records, before applying any tax adjustments. 

Line 2: Income included on tax return not recorded on books this year 

• Report here any income included on Schedule K (Lines 1, 2, 3c, 4, 5a, 6, 7, 8a, 9, and 10) that was not recorded on the books this year.  
• Provide a description for each item and attach a statement if needed. 

Line 3: Expenses recorded on books this year not included on tax return 

• Report expenses recorded on the books this year that are not included on Schedule K (Lines 1–12e and 16f). Itemize each type: 
• Depreciation $: Enter book depreciation not reported on Schedule K. 
• Travel and entertainment $: Enter travel and entertainment costs recorded in the books but not reported on Schedule K. 
• Include additional items, similarly, providing clear amounts and descriptions. 

Line 4: Income/expenses subtotal 

The total of Lines 1, 2, and 3 is automatically calculated by the system, so no manual entry is required. 

Line 5: Income recorded on books this year not included on tax return 

• Report income recorded on the books this year that is not included on Schedule K (Lines 1–10). Itemize each type: 
• Tax-exempt interest: Enter amounts recorded in the books but excluded from taxable income. 
• Provide additional items similarly, with descriptions and amounts. 

Line 6: Deductions on tax return not charged against book income this year 

• Report deductions included on Schedule K (Lines 1–12e and 16f) that were not recorded as expenses in your books. Itemize each type: 
• Depreciation $: Enter depreciation reported on Schedule K but not recorded in the books. 

• Include other deductions, similarly, specifying amounts and descriptions. 

Line 7: Add Lines 5 and 6 

The Line 7 will automatically calculate the total of Lines 5 and 6 for you and Line 8 is the Total income field, then click “Save & Continue” to proceed to the next section. 

Schedule M-2 

Line 1: Balance at beginning of tax year 

Enter the opening balance (beginning of the year) for each account,  

Line 2: Ordinary income from page 1, Line 22 

The ordinary income from Form 1120-S (page 1, Line 22) is automatically filled in for each column. 

Line 3: Other additions 

Enter other income increases not reported elsewhere 

Line 4: Loss from page 1, Line 22 

Enter any ordinary loss from Line 22, shown as a negative amount in the respective columns. 

Line 5: Other reductions 

Enter amounts that decrease the account balances, such as non-deductible expenses or ineligible distributions. 

Line 6: Combine Lines 1 through 5 

The system automatically calculates the adjusted account totals by adding Lines 1, 2, and 3, then subtracting Lines 4 and 5. 

Line 7: Distributions 

Enter any distributions made to shareholders during the year from each account. 

Line 8: Balance at end of tax year. Subtract Line 7 from Line 6 

Subtract distributions (Line 7) from the total (Line 6) to find each account’s end-of-year balance, then click “Save & Continue” to proceed to the next section. 

Reconciliation summary 

Before you move forward, take a moment to carefully review the Reconciliation- Schedule M-1 & Schedule M-2 Summary to ensure everything is accurate and complete. 

1. Review all amounts carefully in the summaries of Schedule M-1 and Schedule M-2. 
2. Verify book-to-tax differences are accurately reported. 
3. Check income and deductions to ensure they match your records. 
4. Confirm adjustments and distributions are properly recorded. 
5. Ensure ending balances reconcile correctly for the tax year. 

Click “Edit” to make corrections or “Continue” to proceed to the Next Section. 

Summary of Form 1120-S 

Form Explorer (Left Panel) 

• Access all related forms and schedules (e.g., 1125-A, 4797, 4562, Schedule D). 
• Expand forms to review details individually. 

Full PDF view of your return, including: 

• Corporation info (name, EIN, address) 
• Income, deductions, and tax calculations 
• Attached schedules 
• Click Edit to Make changes 
• Click Download to Save a copy 
• Click Back to Return to previous section 
• Proceed to E-File to Submit electronically 

Tip: Carefully verify all details and attachments before e-filing to avoid errors. 

Pay & E-File Your Return 

Card details 

Submit Payment and File Return 

• Enter All Required detail  
• Click the “Pay & e-File” button. 
• This will transmit your tax return to the IRS and process your payment. 
• After submission, you should receive a confirmation via email.